5 Ways of Financing Real Estate Investment

5 Ways of Financing Real Estate Investment

There are many ways and reasons to invest in real estate. It might be a hedge against the volatility of markets when the stocks tumble, and there’re a lot of perks related to owning investment properties.

Whether you want to create a passive stream of income by renting properties, flipping properties, or buying raw lands to build on them in the future, investing in real estate is a perfect way to diversify your investment portfolio.

Unlike making an investment in the stock market, which you may do using little cash, real estate investment has a startup cost in general.

Once you determine that real estate investment is best for you, research thoroughly, and get a great deal, you will have to choose one of the following funding options to finance your investment:

  • Mortgage

Many individuals already know about a mortgage. However, most people incorrectly believe that a traditional mortgage may only be used in financing personal residences.

Similar to getting mortgages for personal residences, you must have cash on hand to make a down payment and take care of the closing costs before lenders approve your application.

In order to qualify for a mortgage, you will as well require a good FICO score, plus documentation concerning your outstanding debts and income.

  • Hard Money Loans

A hard money loan is usually used to buy a real estate property that is in bad condition and requires repairs. It is usually backed by the fund from rich investors or private money from different people.

Because there are fewer requirements, hard money lending is a faster way of getting funds to finance real estate investments. Plus, more real estate investors go for hard money loans due to their quick turnaround.

  • All Cash

About 25% of investors in the United States use 100% of their savings to fund their real estate investments. Which is one of the quickest and easiest ways to buy an investment property.

Importantly, investors may buy properties at a lower cost with cash, which improves their profitability. When using cash to make an investment, you will pay the title company through a wire transfer or certified funds, while the company pays sellers.

  • Private Money Loans

Private money lending is important to the growth of many new investors. They mostly have the intent and means of investment capital into the business.

Generally, a private money lender can offer investors cash to buy properties in exchange for specific interest rates. The terms can be established with specific payback periods and upfront.

  • Bank Loans

A bank loan is the most favored option for many potential investors. Taking bank loans and paying them back is common.

Among the greatest benefits of purchasing properties on loan is that the value of interests will keep decreasing. Whereas the properties’ value keeps increasing.

In a Nutshell!

Real estate investment is a long-term game when profits tend to increase over time. However, this goal is achievable if you invest wisely and choose the right financing option.

Whichever kind of financing option you choose. Ensure you will be able to afford to pay the loan back over time.

Leave a Reply

Your email address will not be published. Required fields are marked *